quarterly commentary · · 2018-01-12forward breakeven rates on inflation-indexed ... average...

333 S. Grand Ave., 18th Floor || Los Angeles, CA 90071 || (213) 633-8200

Quarterly Commentary

Total Return Bond Fund

DBLTX/DLTNX

December 31, 2013

333 S. Grand Ave., 18th Floor || Los Angeles, CA 90071 || (213) 633-8200

2

Quarterly Commentary 12/31/13

Overview

2013 was a pivotal year for fixed income markets,

ending with an announcement from the Federal Open

Market Committee (FOMC) of a much anticipated cut

in its Quantitative Easing (QE) programs. One of the

topics of concern was the plummeting unemployment

rate amidst a falling proportion of the population who

are either working, or looking for work.

Also creating concern for central bankers were the

continually low levels of inflation. Both realized

measures of inflation, such as the Consumer Price

Index (CPI) and the Personal Consumption

Expenditures (PCE) Index, and anticipated future

levels of inflation by market participants, such as

forward breakeven rates on inflation-indexed

securities, remain low. Ultimately, however, the

decision to contract purchases by $10 billion per

month ($5 billion each of U.S. Treasury (UST) and

Agency Mortgage-Backed Securities (MBS) purchases)

was deemed the most prudent direction by the voting

members of the FOMC. Upward revisions to Real

Gross Domestic Product (GDP) for the third quarter

showing 4.1% growth received after the decision from

the FOMC would serve to at least partially


substantiate this decision. Non-farm payroll growth of

only 74,000 in December – the lowest such growth

since 2011 – suggests something to the contrary. As

Janet Yellen takes the helm of the Federal Reserve

effective February 1, her ability to navigate this still

nascent recovery will be closely monitored.

Domestic equity markets closed the year with

strength, just as they began. After gaining 10% during

the first quarter of the year, the final quarter of 2013

saw nearly identical growth in the S&P 500 Index.

Following the opposite trend, domestic fixed income

markets as measured by the Barclays U.S. Aggregate

Bond Index nearly mirrored the 0.12% decline

experienced during the first quarter of the year with a

decline of 0.14% during the fourth quarter. While the

index finished the year down 2.0% (the first yearly

0

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Ne

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)

Nonfarm Private Payrolls - Net Change

BLS ADP

Source: Bureau of Labor Statistics, Bloomberg, ADP

Last BLS = 74K

Last ADP = 238K

-10.00%

-8.00%

-6.00%

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%Quarter-over-Quarter (QoQ) Real GDP Growth Estimates

Advance

Second

Third

Latest

Source: Bureau of Economic Analysis, Bloomberg

Q32013 Growth = 4.1%

52.0%

54.0%

56.0%

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62.0%

64.0%

66.0%

68.0%

1/1/

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U.S. Labor Force Participation Rate

Source: Bureau of Labor Statistics, Bloomberg

12/31/2013: 62.8%

3


decline since 1999), most of the movement happened

during the relatively sharp rise in benchmark rates

which spooked fixed income markets broadly during

the second quarter. Ten-year UST rates increased 42

basis points (bps) during the quarter, and finished the

month at 3.02%. The 10-year rate at December

month-end is the highest such monthly close since

June 2011.


4


Agency Mortgage-Backed Securities

Agency MBS had a return of -0.47% for the month of

December 2013, according to the Barclays U.S. MBS

Index. For December, 10-year UST rates rose by 23

bps, and the MBS sector outperformed the U.S.

Treasury (TSY) sector but underperformed the U.S.

Investment Grade Corporate sector according to the

Barclays U.S. Aggregate Bond Index. For the calendar

year 2013, 10-year UST rates rose by 125 bps and the

Barclays U.S. MBS Index had a return of -1.41% for

same period. This 12-month performance was better

than the performances of both the U.S. TSY and U.S.

Investment Grade Corporate sectors according to the

Barclays U.S. Aggregate Bond Index. This is an

example of mortgages outperforming the other

components of the Index when rates rise more than

100 bps.

One of the major reasons for mortgage

outperformance in rising rate environments has

historically been due to the shorter duration of the

MBS sector relative to those of the TSY and Corporate

sectors, according to the Barclays U.S. Aggregate

Bond Index. During the rate rise of 2013, duration of

Agency MBS extended from 3.18 years at the

beginning of the year to 5.66 years at the end of the

year. This is the longest duration ever reported for

the sector. Should rates rise further, we would

expect the duration of the MBS sector to extend

further although we believe the majority of the

extension has already occurred. If rates were to rise

significantly, we believe the MBS duration may

extend above 6, but not much more than that. If that

scenario were to play out over the next 12 months,

the MBS sector could outperform the TSY

sector. How it performs relative to the Corporate

sector will depend in large part on what happens to

U.S. Investment Grade Corporate spreads during that

time period.

One of the major reasons why MBS experience

duration extension during rising rate periods is the

expectation of decreasing prepayment speeds on a

going forward basis. Prepayment speeds went up

marginally for the month of December. This slight

increase in speeds broke the string of six consecutive

declining months of prepayment speeds. Prepayment


Conditional Prepayment Rates (CPR)

2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Fannie Mae (FNMA) 27.8 24.4 24.4 24.0 25.1 22.7 20.5 16.2 12.2 11.5 10.4 10.6

Freddie Mac (FHLMC) 28.2 26.0 25.9 25.3 25.5 23.4 21.5 17.1 13.1 12.0 10.8 11.1

Ginnie Mae (GNMA) 23.3 21.9 21.8 23.0 22.2 19.4 18.2 14.9 12.2 12.1 11.2 11.2

Barclays Capital U.S.

MBS Index 10/31/2013 11/29/2013 12/31/2013 Change

Average Dollar Price 104.60 103.68 102.91 -0.77

Duration 5.26 5.56 5.62 0.06

Barclays Capital U.S.

Index Returns 10/31/2013 11/29/2013 12/31/2013

U.S. Aggregate 0.81% -0.37% -0.57%

U.S. MBS 0.68% -0.62% -0.47%

U.S. Corporate 1.44% -0.27% -0.25%

U.S. Treasury 0.48% -0.33% -0.91%

source: eMBS, Barclays Capital

0.00

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Mortgage Bankers Association Refinance Index

Source: Mortgage Bankers Association via Bloomberg

5


speeds decreased by 60% over 2013 and Agency MBS

experienced their slowest speeds since December

2008, which was in the middle of the subprime

housing crisis. We are already in an environment

where prepayment speeds are at a 5-year low.

Future prepayment speeds will depend partly on

what happens to interest rates. A secondary factor

could be a change in the government’s involvement in

the mortgage process. Currently, the Home

Affordable Refinance Program (HARP) 2.0 is the

government program with one of the largest affects

on prepayment speeds. HARP 2.0 is experiencing

“burnout”, which is what happens as time passes and

the borrowers who qualify have already acted,

therefore leaving fewer eligible borrowers than there

were in the past. The mortgage market is dealing with

the confirmation of Mel Watt as the new director of

Federal Housing Finance Agency (FHFA) as well,

replacing Ed DeMarco. The market’s perception is

that Watt may be more “friendly” towards borrowers

than DeMarco, which could lead to policy decisions

that could increase the prepayment speeds of certain

mortgage securities. Thus far, Watt has indicated that

he will postpone the previously announced increase

in fees across both Fannie Mae and Freddie Mac.

Watt officially takes the position on January 6, 2014

and many investment professionals are closely

watching the decisions made by Watt and their

ramifications on the fixed income markets.

On December 18th, the Fed announced the tapering of

$10 billion per month with half of the tapering being

in MBS. This takes the total amount of Fed purchases

to $75 billion per month, with $35 billion of that in

MBS (this doesn’t include the reinvesting in MBS of

paydowns on outstanding MBS, which can be as much

as $15-20 billion per month). The MBS market seems

to have priced in a 12-month tapering process which

would mean no more QE program 12-months from

now. Assuming this scenario plays out, we would not

expect any widening of MBS. As in most markets,

MBS performance will depend on both the supply and

demand for securities. Currently, the Fed is the

biggest player on the demand side and therefore its

actions are very important; however, there are

changes on the supply side of mortgages that have

experienced even greater change than the Fed

tapering. Last summer, gross issuance of Agency MBS

was approximately $150 billion per month. As rates

have risen, this number has come down

significantly. In fact, December’s number was $75

billion, so the gross issuance of Agency MBS is down

approximately $75 billion per month from where it

was last summer.


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Freddie Mac Commitment Rate - 30 Year

Source: Bloomberg

6


Non-Agency Mortgage-Backed Securities

December trading volume experienced an uptick due

to the liquidation of a large segment of ING’s

portfolio late in the month. The ING list consisted

largely of pay-option Adjustable-Rate Mortgage

(ARM) bonds and thus, this sector of the market saw

an almost three-fold increase from November.

Despite the size of the list and time in the year, the

list traded very well with bids coming from banks,

investment managers, hedge funds and insurance

companies.

Fundamentally, December remittance reports

showed mixed results. Prepay speeds on prime

collateral increased 0.5 Conditional Prepayment Rate

(CPR) while Alt-A and subprime speeds decreased a

modest 0.5 CPR and 0.4 CPR, respectively. Rising

interest rates have been pressuring the fast prepay

speeds seen during much of the second half of 2013.

Liquidations slowed for all sectors with the exception

of subprime. Average Conditional Default Rates

(CDRs) decreased by 0.4 for prime and 0.9 CDR for Alt

-A collateral while subprime, on average, saw

liquidations increase by 0.2 CDR. Loan modifications

slowed going into 2013 year-end with 1,947 loans

modified in December; 56% of all modified loans

were rate modifications, with the average mortgage

rate being reduced by approximately 4%. With supply

still relatively low, technicals continued to put

pressure on yields and we saw a slight tightening

across all sectors. Prime finished the year trading

between 4-4.25%, Alt-A between 4.5-4.75%, and

subprime between 5-5.5%.

On the political front, there was some concern on

what changes would be implemented when Mel Watt

takes over the Directorship of the FHFA. Settlements

between mortgage issuers and investors were hotly

debated throughout 2013. News of the record

settlement by JP Morgan dominated the marketplace.

Ocwen, the largest non-bank servicer, is the latest

entity making the headlines in regards to mortgage

litigation. Ocwen will provide $2.1 billion on

foreclosure compensation and principal modification

for homeowners who are behind on their payments.

The settlement is based on regulator claims that

Ocwen abused its handling of borrowers’ loans. We

will continue to monitor these events closely.


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ABX Prices

ABX 2006-2 AAA

ABX 2007-1 AAA

Source: MarkIt via Morgan Stanley

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PrimeX Prices

PrimeX FRM.1

PrimeX FRM.2

Source: MarkIt via Morgan Stanley

7


Our investment focus for the sector continues to

emphasize security selection. We continue to focus

on shorter duration assets, including securities with a

more “storied” basis, as our ability to drill down to

the collateral and borrower allows us to adequately

assess risk. Looking forward, our outlook for the

sector continues to remain cautious given

uncertainties in the macro environment.

Commercial Mortgage-Backed Securities

New issuance activity kept investors busy throughout

the month of December, finishing the year with $79

billion in total issuance, the highest since 2008. Of the

total, $52 billion were from conduits, representing

less than half of the 2005-2007 conduit issuance

average. Overall, the market sentiment remains

cautiously optimistic as investors generally added to

positions lower down the capital stack now that the

Fed has brought some clarity to concerns with the

taper. We believe that some of the broader themes

for 2014 are the improvement in Commercial Real

Estate (CRE) fundamentals, increase in CMBS issuance

in 2014 and concerns with the continued

deterioration of new issue credit quality due to looser

lending standards. For December, spreads rallied into

year-end with legacy AAA and junior AAA CMBS

spreads tightening versus November. In the new

issue market, AAA spreads ended the month 4-5 bps

tighter while BBB spreads improved by 10-12 bps. For

the month, the CMBS portion of the Barclays U.S.

Aggregate Bond Index returned -0.29% in December,

+0.53% for the fourth quarter and finished +0.23% for

the year.

The delinquency rate continued its decline in

December ending the month at 7.43% (-23 bps). By

property type, the 30+ day delinquency rate for

multifamily declined to 10.86% (-28 bps), industrial to

10.46% (+2 bps), office to 8.13% (-33 bps), lodging to

7.91% (+19 bps), and retail to 6.06% (-26bp). During

the month of December, 93 loans totaling $1.3 billion

were disposed of, resulting in an average loss severity

of 50.4%. We anticipate the delinquency rate to

decline further in 2014 with the pending resolution of

CW Capital liquidation of $2.5 billion of defaulted

loans, fewer expected delinquencies and higher

resolution rates.


8


DoubleLine Total Return Bond Fund

Ticker: DBLTX/DLTNX

As of December 31, 2013

The Doubleline Total Return Bond Fund underperformed the Barclays U.S. Aggregate Bond Index return of

-0.14%, but outperformed the U.S. Mortgage-Backed Securities (MBS) component of the Aggregate Index return

of -0.42% for the fourth quarter of 2013. Interest rates rose over the three month period with the 10 year US

Treasury rate rising 42 basis points closing the year just above 3%. Prices for Agency MBS declined in 2013 as

interest rates rose. FNMA 3s* were down almost 10 points in prices, as lower coupon mortgages have longer

durations and were more negatively impacted by the rise in rates. FNMA 5s* were up 0.3 points as some higher

coupon mortgages were up on the year as those mortgages benefited from a slowdown in prepayments.

Conversely, the Non Agency market rallied throughout the year. Liquidations slowed for all sectors, severity

rates and prepayments were relatively unchanged. The pace of loan modifications slowed going into year end.

Roughly half of total modifications were interest rate modifications with the average rate close to 4% at year

end. The Non-Agency market in general continued to benefit from improved housing conditions with Subprime

benefiting the most. Homeowner’s equity in their homes has increased from just $6 trillion in 2011 to over $9

trillion in 2013.

The Non-Agency MBS sleeve of the portfolio returned just over 1.5%% for the fourth quarter. Lower credit

quality securities performed better than higher credit quality bonds over the last three months from a total

return perspective. Alt-A and Subprime bonds gained the most due to strong price appreciation. All of the Non-

Agency bonds within the Fund contributed high interest income. The average coupon of the sector at year end

was 5.8%.

The Government/Agency Residential Mortgage-Backed Securities (RMBS) portion of the fund detracted just over

1% from the total return due to rising rates over the three month period. This rise in rates has helped the

convexity of the securities as well as allowing the potential for the bonds to yield more going forward. The

largest exposure within the Agency RMBS sector is to fixed-rate Collateralized Mortgage Obligations (CMOs) and

passthroughs which were the worst performers. The average dollar price of the Government/Agency securities

is approximately $102, which is down from $110 at the beginning of the year, and moderately down from $104

at the beginning of the fourth quarter.

Collateralized Loan Obligations (CLOs) started the year strongly with high issuance and strong secondary trading.

Spreads tightened and the portfolio benefited from strong price gains over the first half of the year. While

trading activity slowed over the last 6 months, the CLO sector remained largely insulated from most of the

volatility seen in broader fixed income markets, and the spread on the securities within the portfolio widened

only modestly over the last quarter.

Commercial Mortgage-Backed Securities (CMBS) turned in positive returns to the Fund over this three month

time period of approximately 1.3% in total return as the sector has experienced improved fundamentals over the


Performance Attribution

* Referring to two types of Agency mortgage-backed securities (MBS): Fannie Mae (FNMA) with a 3% coupon and a FNMA with a 5% coupon, respectively.

9


DoubleLine Total Return Bond Fund

Ticker: DBLTX/DLTNX

As of December 31, 2013

year with falling delinquency rates, lower severities and stabilized valuations.

Because of rising interest rates, MBS durations have extended with the U.S. MBS component of the Barclays U.S.

Aggregate Bond Index ending the year at 5.7 years, while the Barclays Aggregate Index ended the year with a

duration of 5.5 years. This is the longest duration ever reported for the MBS sector. The DBLTX portfolio

continued to have a shorter duration than that of the Index at 4 years, but has extended from a 2 year duration

at the beginning of 2013. The duration of the Fund has extended due to a combination of the interest rate rise

and an increased concentration in securities as cash was lowered to meet redemptions. While a further increase

in rates should make the MBS sector’s duration extend slightly more, most of the extension of this sector has

already occurred as evidenced by a relatively unchanged duration over the last quarter.


Performance Attribution (continued)

10


Total Return Bond Fund As of December 31, 2013

Performance data quoted represents past performance; past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than the original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling 213-633-8200 or by visiting www.doublelinefunds.com. The performance information shown assumes the reinvestment of all dividends and distributions. Barclays U.S. Aggregate Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the US investment grade fixed rate bond mar-ket, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. It is not possible to invest in an index. *If a Fund invested in an affiliate Fund sponsored by the Adviser during the period covered by this report the Adviser agreed to not charge a management fee to the Fund in an amount equal to the investment advisory fees paid by the affiliated Fund in respect of the Fund’s investment in the affiliated fund to avoid duplicate charge of the invest-ment advisory fees to the investors.

Investment Grade—Refers to a bond considered investment grade if its credit rating is BBB– of higher by Standard & Poor’s or Baa3 or higher by Moody’s. Ratings are based on a corporate bond model. The higher the rating the more likely the bond will pay back par/100 cents on the dollar. Below Investment Grade—Refers to a security that is rated below investment grade. These securities are seen as having higher default risk or other adverse credit events, but typically pay higher yields than better quality bonds in order to make them attractive. They are less likely to pay back 100 cents on the dollar. *There are no industry standard definitions for non-agency Mortgage securities. These definitions are DoubleLine’s based on Vichara and Loan Performance data. Prime is defined

as FICO > 725 and LTV < 75 ; Alt-A defined as FICO 675-725; or FICO > 725 and LTV >= 75 ; Subprime defined as FICO < 675. NA = Not available in Vichara or Loan Performance. 1) Standard Deviation = A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Calculated by the

square-root of the variance. 2) Market price is the weighted average of the prices of the Fund's portfolio holdings. While a component of the fund's Net Asset Value, it should not be confused with the Fund's NAV. 3) Duration is a commonly used measure of the potential volatility of the price of a debt securities, prior to maturity. Securities with a longer duration generally have more volatile prices than securities of comparable quality with a shorter duration. 4) Weighted Average Life (WAL) = the average number of years for which each dollar of unpaid principal on a loan or mortgage remains outstanding. 5) Credit distribution is determined from the highest available credit rating from any Na-tionally Recognized Statistical Rating Organization (S&P, Moody's and Fitch).

Sector allocations are subject to change at any time and should not be considered a recommendation to buy or sell any security. Portfolio holdings generally are made available fifteen days after month-end by calling 1-877-DLine11. The source for the information in this report is DoubleLine Capital, which maintains its data on a trade date basis.

http://www.doublelinefunds.com/

11


Disclaimer

Disclaimer

The fund’s investment objectives, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contains this and other important information about the investment company, and it may be obtained by calling 1 (877) 354-6311/ 1 (877) DLINE11, or visiting www.doublelinefunds.com. Read it carefully before investing. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for

longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to

principal and interest than higher-rated securities. Investments in Asset-Backed and Mortgage-Backed Securities

include additional risks that investors should be aware of such as credit risk, prepayment risk, possible illiquidity

and default, as well as increased susceptibility to adverse economic developments.

The Fund may use certain types of investment derivatives. Derivatives involve risks different from, and in certain

cases, greater than the risks presented by more traditional investments. Derivatives may involve certain costs and

risk such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed

when most advantageous. Investing in derivatives could lose more than the amount invested. The Fund may also

invest in securities related to real estate, which may decline in value as a result of factors affecting the real estate

industry.

The DoubleLine Total Return Bond Fund intends to invest more than 50% of its net assets in mortgage-backed se-

curities of any maturity or type. The Fund therefore, potentially is more likely to react to any volatility or changes

in the mortgage-backed securities marketplace. These risks are greater for investments in emerging markets.

Sector Allocations are subject to change at any time and should not be considered a recommendation to buy or

sell any security. Portfolio holdings generally are made available fifteen days after month end by calling 1-877-

DLine11. Credit ratings from Moody’s range from the highest rating of Aaa for bonds of the highest quality that

offer the lowest degree of investment risk to the lowest rating of C for the lowest rated class of bonds.

Fund portfolio characteristics and holdings are subject to change without notice. The Advisor may change its

views and forecasts at anytime, without notice.

While the Fund is no-load, management fees and other expenses still apply.

Please refer to the prospectus for further details.

DoubleLine Capital LP is the advisor to the DoubleLine Funds, which are distributed by Quasar Distributors, LLC.

The source for the information in this report is DoubleLine Capital, which maintains its data on a trade date basis.

DoubleLine® is a registered trademark of DoubleLine Capital LP.

©2014 DoubleLine Funds.

12


Definitions ABX Index

The ABX Index consists of the 20 most liquid credit default swaps (CDS) on U.S. home equity asset-backed securities (ABS) and is used to hedge asset-backed

exposure or to take a position in the subprime mortgage asset class. The ABX Index has four series (06-1, 06-2, 07-1 and 07-2) with five tranches per series. The ABX

07-1 AAA Index references underlying collateral of that 2007 vintage and AAA credit quality type, just as the ABX 06-2 AAA Index references underlying collateral of

the 2006 vintage and AAA credit quality type.

Barclays Capital U.S. Aggregate Bond Index

The Barclays Capital U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the US

investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-

backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis.

Barclays Capital U.S. MBS Index

The Barclays Capital U.S. MBS Index measures the performance of investment grade fixed-rate mortgage-backed pass-through securities of the

Government-Sponsored Enterprises (GSEs): Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC).

Barclays Capital U.S. Treasury Index

The Barclays Capital U.S. Treasury Index is the U.S. Treasury component of the U.S. Government Index. Public obligations of the U.S. Treasury with a

remaining maturity of one year or more.

Basis Point

A basis point (bps) equals to 0.01%.

Cash Flow

Cash flow measures the cash generating capability of a company by adding non-cash charges (e.g. depreciation) and interest expense to pretax income.

Duration

A measure of the sensitivity of a price of a fixed income investment to a change in interest rates, expressed as a number of years.

HELOC

A home equity line of credit (HELOC) is a line of credit extended to a homeowner that uses the borrower’s home as collateral.

Institute of Supply Management (ISM) Manufacturing

This index is based on surveys of more than 300 manufacturing firms by the ISM and monitors employment, production inventories, new orders and

supplier deliveries.

Payment Option ARM

A monthly adjusting adjustable-rate mortgage (ARM) which allows the borrower to choose between several payment options (a 30 or 40-year fully

amortizing payment, a 15-year fully amortizing payment, an interest– only payment, a minimum payment or any amount grater than the minimum

payment).

Prime, Alt-A, and Subprime

These are subsets of non-Agency mortgage-backed securities (MBS) depending on underlying loan criteria. For example, the prime non-Agency MBS bucket

includes prime rated securities that have underlying loans where the borrowers are most credit-worthy and highest likelihood of paying. Alt-A non-Agency

MBS includes underlying loans where borrowers still have good credit but there may be other risk concerns with the loan, for example a higher loan-to-

value (LTV) or debt-to-income ratios. Subprime non-Agency MBS includes underlying loans with the lowest credit quality borrower type and raised risk

concerns of likelihood of payment. Subprime Mezznine (Mezz) refers to a tranche of a subprime non-Agency MBS security, specifically the mezzanine

tranche.

PrimeX

The PrimeX index is a synthetic credit default swap (CDS) index which references non-Agency, prime residential mortgage-backed securities (RMBS). There

are 20 prime RMBS deals referenced from the 2005, 2006, and 2007 vintages. The vintages separate the PrimeX into four sub indices by cut-off dates and

collateral type. The PrimeX Fixed-Rate Mortgage (FRM) 1 and FRM 2 are two of these sub indices that contain specific underlying collateral and vintage

types.

Real Gross Domestic Product (GDP)

An inflation-adjusted measure that reflects the value of all goods and services produced in a given year, expressed in base-year prices. Often referred to as

"constant-price," "inflation-corrected" GDP or "constant dollar GDP".

S&P/Case-Shiller Index

The index measures the change in value of the U.S. residential housing market by tracking the growth in real estate values

by following the purchase price and resale value of homes. An investment cannot be made in an index.

13


Disclaimer

As of December 31, 2013 the DoubleLine Total Return Bond Fund held 23.25% in Fannie Mae (FNMA), 4.97% in Freddie Mac (FHLMC), 0.00% in Ginnie Mae (GNMA), ING

and CW Capital, and holds no common stock in JP Morgan and Ocwen. Fund Holdings and sector allocations are subject to change and should not be construed as a

recommendation to buy or sell any security.

Important Information Regarding This Report

Issue selection processes and tools illustrated throughout this presentation are samples and may be modified periodically. Such charts are not the only tools used by the

investment teams, are extremely sophisticated, may not always produce the intended results and are not intended for use by non-professionals.

DoubleLine has no obligation to provide revised assessments in the event of changed circumstances. While we have gathered this information from sources believed to

be reliable, DoubleLine cannot guarantee the accuracy of the information provided. Securities discussed are not recommendations and are presented as examples of

issue selection or portfolio management processes. They have been picked for comparison or illustration purposes only. No security presented within is either offered for

sale or purchase. DoubleLine reserves the right to change its investment perspective and outlook without notice as market conditions dictate or as additional information

becomes available. This material may include statements that constitute “forward-looking statements” under the U.S. securities laws. Forward-looking statements in-

clude, among other things, projections, estimates, and information about possible or future results related to a client’s account, or market or regulatory developments.

Ratings shown for various indices reflect the average for the indices. Such ratings and indices are created independently of DoubleLine and are subject to change without

notice.

Important Information Regarding Risk Factors

Investment strategies may not achieve the desired results due to implementation lag, other timing factors, portfolio management decision-making, economic or market

conditions or other unanticipated factors. The views and forecasts expressed in this material are as of the date indicated, are subject to change without notice, may not

come to pass and do not represent a recommendation or offer of any particular security, strategy, or investment. All investments involve risks. Please request a copy of

DoubleLine’s Form ADV Part 2A to review the material risks involved in DoubleLine’s strategies. Past performance (whether of DoubleLine or any index illustrated in this

presentation) is no guarantee of future results. You cannot invest in an index.

Important Information Regarding DoubleLine

In preparing the client reports (and in managing the portfolios), DoubleLine and its vendors price separate account portfolio securities using various sources, including

independent pricing services and fair value processes such as benchmarking.

To receive a complimentary copy of DoubleLine’s current Form ADV (which contains important additional disclosure information. including risk disclosures), a copy of the

DoubleLine’s proxy voting policies and procedures, or to obtain additional information on DoubleLine’s proxy voting decisions, please contact DoubleLine’s Client Ser-

vices.

Important Information Regarding DoubleLine’s Investment Style

DoubleLine seeks to maximize investment results consistent with our interpretation of client guidelines and investment mandate. While DoubleLine seeks to maximize

returns for our clients consistent with guidelines, DoubleLine cannot guarantee that DoubleLine will outperform a client's specified benchmark. Additionally, the nature

of portfolio diversification implies that certain holdings and sectors in a client's portfolio may be rising in price while others are falling; or, that some issues and sectors

are outperforming while others are underperforming. Such out or underperformance can be the result of many factors, such as but not limited to duration/interest rate

exposure, yield curve exposure, bond sector exposure, or news or rumors specific to a single name.

DoubleLine is an active manager and will adjust the composition of client’s portfolios consistent with our investment team’s judgment concerning market conditions and

any particular security. The construction of DoubleLine portfolios may differ substantially from the construction of any of a variety of bond market indices. As such, a

DoubleLine portfolio has the potential to underperform or outperform a bond market index. Since markets can remain inefficiently priced for long periods, DoubleLine’s

performance is properly assessed over a full multi-year market cycle.

Important Information Regarding Client Responsibilities

Clients are requested to carefully review all portfolio holdings and strategies, including by comparing the custodial statement to any statements received from Dou-

bleLine. Clients should promptly inform DoubleLine of any potential or perceived policy or guideline inconsistencies. In particular, DoubleLine understands that guideline

enabling language is subject to interpretation and DoubleLine strongly encourages clients to express any contrasting interpretation as soon as practical. Clients are also

requested to notify DoubleLine of any updates to Client’s organization, such as (but not limited to) adding affiliates (including broker dealer affiliates), issuing additional

securities, name changes, mergers or other alterations to Client’s legal structure.

DoubleLine® is a registered trademark of DoubleLine Capital LP.

© 2014 DoubleLine Capital LP

quarterly commentary · · 2018-01-12forward breakeven rates on inflation-indexed ... average...

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